Techtronic Industries (HKG: 0669) (OTCQX: TTNDF) shares are down 17% in Hong Kong today. The fall is as a result of the results announced which are not, as we can guess from that 0669 share price, good. The basics of the report are: “Techtronic Industries (0669) said its first-half net profit declined by 17.7 percent from the prior year to US$476 million (HK$3.70 billion) but kept the interim dividend unchanged at 12.2 US cents. The Hong Kong-based power tools maker's sales dipped by 2.2 percent, or 1 percent in local currencies, to US$6.88 billion during the period. Among them, revenue from North America dropped by 4.2 percent to US$5.2 billion while Europe rose by 7.3 percent to US$1.15 billion, a filing showed yesterday.” Those are not terrible results but they’re clearly below expectations - this the share price decline.
The big interest is really in the short sellers report about Techtronic: “Techtronic Industries (HK: 0669) (OTCQX: TTNDY) shares are up near 6% in Hong Kong today. This is something of a strange reaction to a short selling report - an indication that perhaps the report is not wholly believed in each and every particular. It's also not what the issuer of the report, Jehoshaphat, were quite wishing for. …..The Jehoshaphat claims seems complicated but it actually fairly simple: “ We believe that Techtronic has been defrauding Home Depot on a massive scale for at least four years.
“Exposing this scam now will put an end to it, which we believe will in turn reduce TTI's operating income by approximately one-third. With this near-term catalyst in mind, we are again short TTI shares. The scam involves TTI mislabeling Home Depot-exclusive brands as “Factory Blemished” in order to sell them through an outlet channel TTI owns. This channel is called “Direct Tools Factory Outlet,” or DTFO.” “
Techtronic share price from Google Finance
To simplify that claim. Jehoshaphat is claiming that Techtronic claims more seconds (partial failures) than there are then sells them through its factory outlets at high margins. This is in breach of the trademark etc agreements with the brands it OEM manufactures for.
Now, whether that’s true or not is another matter. But those shorts do seem to have got the share price movement right.
We can even be very cynical about this indeed. Imagine that you, as a corporation, had been shading sales a bit at the margin. You then got accused of doing so. Clearly, you’d not admit it. But now the accusation is public it’s probably a good idea to stop doing that shading. Which means that the next few sets of accounts are going to show deteriorations in performance as the boost from the shading is removed from the numbers.
No, no, of course that’s not what’s actually happening. But this is what it could look like if it were.
